Cincinnati Financial Beats Estimates
Cincinnati Financial Corp. (CINF) reported second quarter 2012 operating earnings of 17 cents per share, striding ahead of the Zacks Consensus Estimate of 11 cents. Earnings rebounded from the loss of 58 cents incurred in the year-ago quarter. Operating income came in at $28 million reversing the year ago loss of $94 million.
Including net realized investment gains and losses of $4 million or 3 cents per share the company reported a net income of $32 million or 20 cents per share improving significantly from net loss of $50 million or 31 cents per share in the year-ago quarter.
The quarter benefited from strong property casualty underwriting.
Operational Update
Revenue for the quarter stood at $1.02 billion, up 4.6% year over year, also considerably ahead of the Zacks Consensus Estimate of $0.998 billion. The increase in total revenue was primarily led by higher premiums earned during the quarter.
Investment income increased marginally by 1% over the prior-year quarter to $100 million.
Total benefits and expenses decreased 7.7% year over year to $991 million due to lower insurance loss and benefits, including interest expenses and other expenses.
Segment Results
The Commercial Lines Insurance segment recorded written premium of $626 million, up 16.6% from the prior-year quarter, reflecting growth in renewal written premium. Lower loss and loss expenses narrowed the underwriting loss in this segment to $20 million from a loss of $129 million in the prior-year quarter.
Combined ratio, a measure of insurer’s profitability, improved 2070 basis points year over year to 103.5% owing to lower catastrophe losses.
Premiums written in the Personal Lines Insurance segment increased 19% year over year to $250 million, aided by an increase in renewals. Despite a higher top line, the segment posted underwriting loss of $55 million.
Nevertheless, it was considerably lower than the loss of $142 million suffered in the year-ago quarter. The combined ratio improved 5340 basis points year over year to 126.1% during the second quarter.
Premiums written in the Excess and Surplus Lines Insurance segment amounted to $27 million, up 28.6% year over year. The growth was largely driven by persistent increase in average renewal price in the high single-digit range. The combined ratio deteriorated 3480 basis points year over year to 110.7% during the second quarter.
Earned premiums in the Life Insurance segment increased 18.6% year over year to $51 million, on the back of an 11% increase in Term life insurance.
Financial Update
Book value per share, a measure of net worth, was up 2.5% year on year but down 1.3% sequentially to $31.66 as of June 30, 2012. The company’s total assets were valued at $16.09 billion, increasing 2.9% over 2011-end, while shareholders’ equity was $5.14 billion, reflecting a 2.2% increase from $5.03 billion as of December 31, 2011.
Dividend
On July 16, 2012, Cincinnati Financial paid a cash dividend of 40.25 cents per share to shareholders of record as on June 20, 2012.
Peer Take
Cincinnati Financial closely competes with The Chubb Corp. (CB) and The Travelers Companies Inc. (TRV). Chubb Corp. reported second quarter operating earnings of $1.37 per share, significantly ahead of the Zacks Consensus Estimate of $1.15 per share. Earnings also compare favorably with $1.27 per share reported during the prior-year quarter.
Travelers reported earnings of $1.26 per share in the second quarter of 2012, lagging the Zacks Consensus Estimate of $1.38 per share. Results rebounded from the loss of 88 cents incurred in the year-ago quarter.
Total revenue in the quarter under review was $6.4 billion, flat with the year-ago quarter, driven by the increase in premiums earned, partially offset by decrease in net investment income. Revenue surpassed the Zacks Consensus Estimate of $6.3 billion.
Zacks Rank
Cincinnati Financial currently retains a Zacks #2 Rank, which translates into a short-term Buy rating. However, we maintain a long-term Neutral recommendation on its shares.
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